Central Bank Of Armenia Keeps Interest Rate Stable As Inflation Ease

BYLINE: Venla Sipila

Global Insight
November 9, 2011

The Central Bank of Armenia (CBA) has in its November meeting decided
to hold on to the current level of the refinancing interest rate,
Reuters reports. Thus, the policy rate remains at 8.0%, where it
had been taken by a 50-basis-point cut in September (seeArmenia: 7
September 2011:). The decision was taken following some renewed easing
in inflation. Indeed, the latest consumer price inflation figures from
the Armenian Statistics Service show that annual inflation in October
fell to 5.7%, from 6.2% in September. Thus, inflation just remained
above the upper limit of the CBA’s target range of 1.5 percentage
points on either side of a central rate of 4%. Annual inflation had
retreated within the target range in August, posting 4.8% year-on-year
(y/y). In month-on-month (m/m) terms, consumer prices in October rose
by 0.3%. Food prices still rose by the fastest rate in annual terms,
but their m/m gain was outpaced by price growth of non-food goods.
Cumulative price growth since the beginning of the year stands at
5.1%, while the annual inflation rate for the January-October period
was reported at 8.3%.

Significance:The latest inflation data confirm that the downward trend
in inflation is continuing, as we expected. The target range should
be within reach in the final months of the year. Price pressures have
eased with the improved agricultural harvest compared to last year,
and given the large share of food items in the Armenian consumption
basket. Demand-side pressures at present remain fairly modest as well.
The reasonably encouraging inflation outlook comes with rising risks,
however. Overall, global commodity prices still remain high, and the
external environment is volatile. In the case of a major slowdown in
global and European growth, private foreign currency inflows would
be suppressed, and this would potentially add to inflation pressures
also via the exchange rate channel.